Page 111 - ic92 actuarial

Foundations of Casualty Actuarial Science

Substituting this value of A, in 1st formula, we get
L (1 + G)

R = E(1 - V- Q)

Q6. Find the relationship between Pure

Premium and Loss Ratio Methods.

Ans. The loss ratio method uses experience losses

while the pure premium method is based upon

experience pure premium. The relation between

them being :

P = L
E

Which can be expressed as L = EP

Also, the loss ratio method relates non-premium-
related expenses to losses while the pure premium
method uses exposures as the base for these expenses.
The relationship can be expressed as :

G = EF
L

= F
P

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